The Apprentice

Almost one year into my “apprenticeship” as a technology start-up CEO I found it was time to take stock of achievements, critically reassess my position and then plan for the next phase of growth. Balancing the capital requirements of the business has proven to be the biggest challenge.

I read somewhere recently a suggestion that there is “an inverse relationship between the amount of capital available and the level of creativity in a start-up.” To some extent this is true. With too much capital in the bank there is a lot less urgency to get your product built and consequently innovation happens at a much slower pace. But when a company needs to find the cash to pay for rent and employees each month, building a brand and growing revenue certainly come into much sharper focus.  However, bringing in an investor should not be a priority at an early stage because it may result in divesting too much control at a very low price. If possible, put your assumptions to the test first.

On the other hand, running a capital starved business is like flying an aircraft without enough fuel in the tanks. You won’t make it to your destination and you may well end up wrecked in some farmer’s turnip field. Hence, we train pilots to load sufficient fuel for the planned flight plus an additional fixed margin for safety. Most experienced pilots add a little extra on top of this, especially if the weather is inclement. When the economic climate is adverse, it is not the time to be short on financial fuel.

We’ve made huge progress since we launched iWantMyName last December and I’m very proud of what the guys have already achieved. The good news for ideegeo is that the site has growing revenues and is only the first of several spin-off projects as we build and test our internal capability. The bad news is that we have entered a mature market in a highly competitive industry with this first project. That means we have no choice but to offer the best user experience and market our product powerfully.

Something else I read recently. “Overnight success” can take years, especially in the technology sector. That is why I realised that it was time to sit down, readjust my self-imposed frame of reference and plan for more growth (and more hard work). If consumers see value in the product, cash will continue to flow into the business; if not then it will soon become an expensive hobby. The key will be to add smart services that differentiate iWantMyName from other offerings in the market.

5 thoughts on “The Apprentice

  1. I think you raise a very valid point Paul and one that is often overlooked. It really is not a good idea to be too comfortable financially in a start-up. Years back when running a sales division I always wanted to understand what made a particular salesman “hungry”. My experience was that those that were too financially comfortable and had no imperative were less successful and driven.

    Of course you are right that a cash starved start-up will also go nowhere in a hurry!

    As with everything there is a balance to strike. Have personal risk in a start-up and not having a financial parachute I think does drive activity and innovation. However it needs to stop short of turning into panic.

  2. Thanks for your comments Ed.

    Yes it is very much a balancing act. It helps to understand the relationship between risk and opportunity too. On the one hand we are trying to minimise specific threats (such as exhausting our capital or running out of fuel) on the other hand we are attempting to push the innovation envelope to maximise the economic return.

    The aviation analogy in the article was intentional by the way and stems from my days as a commercial pilot. Much of a pilot’s time is given over to minimising risk whilst maximising economic return. I learnt a lot about leadership in those days.

  3. I’m with you there Paul. We’ve shied away from having too much capital preferring to impose fiscal discipline and hit our targets but it would be nice to employ a few more people :-)

    But one thing we’ve really learnt is that there is no “overnight success” or summit to reach. You’re not going to wake up suddenly one day and it’s all over. In a way creating a new business is just like any other job except for the risk/reward pay off. Smoothing expectations can be just as important in focusing the business into a more long term view and away from the hope of signing the “big one”.

  4. Good one. Hope the plane’s flying along just fine.
    iWantMyName is an awesome concept. I see your iPhone app is on the list of top free apps. well done.
    I recently implemented Xero, seeing it’s pretty important to have an accurate fuel gauge.

Leave a Reply

Your email address will not be published. Required fields are marked *